When you are facing a situation surrounding outstanding debt payments and find yourself drowning in the due dates, opting for a solution like debt consolidation seems to be the ideal decision. Debt consolidation serves as a godsend especially when it comes to small business loans, personal loans, credit card loans and line of credits. On the other hand, when you are trying to start a new business venture, you will need funds to finance it, which can be a tough nest to crack if you are not debt-free presently. With debt consolidation, you can combine all your debts into a lump sum and get a new loan at a lower rate of interest.
Even though debt consolidation is a great option when it comes to tackling several due dates and loans with higher interest rates, you can still face many setbacks if you are not savvy while consolidating your loans. According to time.com, debt consolidation is a temporary solution to an existing major problem. It is just a tool that provides you a fighting chance against your outstanding loans. With that being said, here are some of the few pitfalls to avoid while consolidating your present debts before initiating a fresh business venture:
Not Identifying the Root of the Problem
In most debt cases, the general notion that implicates behind acquiring a debt consolidation loan is a knee-jerk reaction that debtors show when they find it almost impossible to manage the repercussions once their spending gets out of the proportion. The reaction is not wrong at all, but the real problem remains untapped and unidentified which keeps on piling with the passage of time. You must address the different issues that made you opt for a debt in the very first place and your current lifestyle, which is not allowing you to comply well with the due payments. For instance, a general debt consolidation happens with loans that cross an estimate of ten thousand dollars. Such kind of scenario does not occur overnight and an aftermath reaction should not either. It is important to find the root of the problems that got you into debt otherwise the same situation will happen again.
Glossing Over Previous Actions
Do not cover up for your previous actions. Instead, face them straightforward and try to seek professional assistance in retracting your steps. You can easily identify the root problems and track your spending with a help from a financial adviser, money coach or a debt counselor such as nationaldebtrelief.com. It might be that you were spending too much of your income into the common areas of expenditure such as car payments, housing, and other living costs and you require to analyze the ways to reduce them. Meanwhile, the problem can be much simpler than you were suspecting like reducing your expenses on entertainment. Opting for professional help can replace your old habits and you can start your business venture without making the same mistakes twice. Besides, it will also provide you with an idea on how to monitor spending on a routine basis and analyze the major differences between your wants and needs.
Forgetting to Research Options Prior Consolidating
When it comes to debt consolidation, there is a wide variety of options available in the market that suits your unique condition. From secured loans to unsecured loans, you can find a broad spectrum of options ideal for your debt situation. Do not choose any plan in hassle just to get rid of your current financial situation and start a business venture that will affect your finances in the future. It is critically important to be proactive while browsing for the best plans when you decide to seek a debt consolidation loan. Lay out your multiple loans and shop around for the consolidation loan with lower interest rates and connect with your lenders and creditors to see if they can negotiate at a lower rate.
Consolidating the Wrong Debts
There are some cases where the entrepreneurs consolidate all of their debts including the ones that have the lower rate of interest such as student loans, just to kick-start their business venture as soon as possible. The key is to find the balance between combining the debts with the higher interest rates and excluding the low balance, low-interest debts to pay off later in a separate manner.
Selecting the Wrong Professional
It goes without saying that the debt settlement niche is sometimes questioned due to aggressive tactics and shady practices laid out by some unethical organizations. There are few firms that often withhold the payments from creditors to secure a deal, something which can cause a serious damage to overall credit rating. Earlier, it was a traditional norm to charge fees from the clients prior to consolidating debts and acquiring the desired results. However, the Federal Trade Commission eradicated such fees, which makes it important to check with the BBB or Better Business Bureau prior to considering working with any organization. Apart from that, make sure that you are going through the firm’s website and evaluate the reviews carefully. In case you find any organization spamming you with emails and aggressive sales tactics, ignore the proposition.
Using Your Cards Too Soon
Debt consolidation renders an instant and incredible relief from continuous phone calls for collections and keeping up with the task of combating outstanding credit card bills. Nevertheless, it a common mistake committed by most people to avail the freshly freed up credit on the credit cards and start spending again. It is necessary to keep on reminding yourself that you do not still possess a clean slate and owe a considerable amount of debt. Try to shut down most of your credit cards or at least resist yourself from using them until there is a case of an emergency. Besides, leaving too many cards open can sometimes lead to identity theft, which makes it ideal to freeze them up.
Finally, it requires a solid plan to consolidate your existing debts and pay them off before starting a new business venture. Avoid the aforementioned pitfalls while consolidating your loans and secure a fresh start with your new business initiative.